One of the most worrisome things about the so-called Fiscal Cliff was that the previous law that granted income tax forgiveness for short sales expired on 12/31/12. Under the Mortgage Debt Forgiveness Act, if someone had debt forgiven by a bank as part of a short sale settlement, they did not have to pay income tax on the amount that was forgiven, but with this expiring there were a lot of nervous homeowners that were “underwater” and might have not only had to accept a short sale but had a huge income tax penalty besides.
Fortunately, as part of the last possible minute settlement to the “Fiscal cliff”, the Congress passed and President Obama signed a continuation of the Mortgage Debt Forgiveness Act into law. Therefore, the Act is extended to the end of 2013.
This is great news for everyone, as it will keep the fledgling housing recovery going.